EDITORIAL: Ammiano bill would close a Prop. 13 loophole

May 20, 2014 

Paul Gann, left, and Howard Jarvis, hold up their hands on the night of June 7, 1978, as their co-authored initiative Proposition 13, took a commanding lead in the California primary.

ASSOCIATED PRESS FILE

The Legislature soon may alter Proposition 13 in a way that would bring a measure of fairness to California's property tax system and cause some corporations to pay higher taxes in the future.

The legislation, AB 2372 by Assembly Member Tom Ammiano, D-San Francisco, deserves support among even the most adamant anti-tax legislators.

Under Proposition 13, property is supposed to be reassessed each time it is sold. When you buy a home, you'll pay taxes based on the purchase price, not on the amount prior owners paid.

The change-of-ownership rule is straightforward. But if you're a rich guy or a corporation with savvy lawyers, it's easily evaded, as The Los Angeles Times wrote last year when it described Texas billionaire Michael Dell's purchase of the iconic Fairmont Miramar Hotel in Santa Monica.

Dell, who bought the hotel for $200 million, evaded roughly $1 million a year in property taxes by splitting the purchase among himself, his wife and a limited liability corporation. That way, no single entity or individual owned more than half the property.

Since a majority of the property didn't change hands, his attorneys reasoned, there could be no reassessment based on the 2006 purchase price. Instead, property taxes would continue to be based on its 1999 value, $86 million.

The Los Angeles County assessor challenged Dell's claim. The issue is pending before a California state Court of Appeal. The case has played out in several other instances, particularly when publicly traded corporations buy property. It costs government about $73 million a year, according to the Board of Equalization.

Ammiano's bill would close the loophole for future transactions. The Howard Jarvis Taxpayers Association, the defender of the 1978 initiative that fanned the anti-tax movement, is neutral on the bill and uninterested in lobbying against it. The California Chamber of Commerce, which opposed prior versions, appears willing to support a revised measure, depending on its final wording. Jarvis and the chamber are wise to take such stands.

Voters overwhelmingly approved Proposition 13 in 1978 because rapidly rising property taxes were forcing homeowners to sell. Since its passage, however, the burden of paying property tax increasingly has shifted from business toward homeowners.

Lawmakers ought to approve Ammiano's proposal. There is no justification for wealthy people and large corporations getting tax breaks at the expense of homeowners and small businesses.

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